Hjalmar Schacht is best remembered according to the title of one
biographer’s book as Hitler’s Banker" and according to another
biographer’s book title as "Hitler’s Magician." The first designation
is literally true: Schacht was named President of Germany’s Central Bank and
Minister of Economics shortly after von Hindenberg made Hitler Chancellor.
Schacht, of course, was no magician but his performance in the positions he
held was spectacular.

Hitler, like Franklin Roosevelt, came to power in 1933 primarily because of
electorate discontent over unemployment which in Germany was about 23 percent
and in the USA about 24 percent. It is true that Hitler also appealed to the
resentment of the German people over the Versailles Treaty but his rhetoric on
this issue would not have gotten him very far had Germany enjoyed full
employment.

By 1936 the Roosevelt Administration had reduced unemployment by about seven
percentage points (to 17 percent) and he was re-elected by a landslide. By 1937
Hitler was also riding a wave of popularity since unemployment was down about
twenty percentage points (to about 3 percent). What was accomplished in Germany
made the USA accomplishment almost insignificant by comparison. "Hitler’s
feat" was, however, in large measure attributable to "Schacht’s
magic."

Hitler early on relieved unemployment a little by sponsoring the
construction of autobahns and other infrastructure projects but most of the
idle workers who found employment found it in armament industries.
"Rebuilding the country and its armed might is the way to provide work and
dignity," Hitler proclaimed! In fact, providing employment was merely
incidental to Hitler’s real interest–making Germany a first rate military
power, avenging its defeat in World War 1, and eventually armed conquest of his
neighbours.

But whether Hitler demanded money for roads, or for guns, tanks, and planes,
Schacht delivered it. As one biographer writes:

"Schacht’s job was to provide Hitler with funds and he did." In
his own words, what Schacht provided was "credit assistance" but he
provided fiat money and other assistance as well. It would take a more ardent
archivist than I am to detail the extent to which each of Schacht’s ploys
contributed to the overall result but among other things he printed and put
into circulation legal tender Deutschemarks, he printed and circulated
negotiable four percent bonds, and thus assured the financing of whatever
Hitler wanted to do.

Schacht considered inflation unlikely so long as the economy remained short
of full employment. Any "inflationary spiral" was further rendered
unlikely by Hitler’s fiats concerning wage and price control. As it happened,
inflation never imperiled Hitler’s authority.

What Hitler and Schacht resorted to was what in other countries and at a
later date came to be called "military Keynesianism." J.M. Keynes’
recipe for relieving unemployment in England and elsewhere in the 1930s was for
government (as was said) "to borrow and borrow, spend and spend" on
infrastructure public works (nor armaments). Later, when the borrowing and
spending came to be for military hardware simple Keynesianism came to be called
military Keynesianism.

Once full employment had been attained in Germany further expansion of war
production was less a matter of the creation of money or credit and more a
matter of ruthless regimentation of production. Schacht’s unique talents were
now less needed and besides Hitler had never been pleased with Schacht’s
failure to join the Nazi Party or show a proper enthusiasm for it. Schacht
believed in capitalism and in entrepreneur profits whereas Hitler couldn’t care
less whether capitalists made profits so long as he could coerce them into
maximizing armaments production. Schacht's influence waned after April 1936
when Hermann Goring began taking over. Schacht was first ousted as Reichsbank
President and later relieved as Minister of Economics. By late 1937 he was
essentially without power and in 1941 when the eighth anniversary of Hitler’s
coming to power the Nazi Party newspaper published a detailed chronicle of the
achievements and events of the intervening years. Alas, Schacht’s name found no
mention.

Meanwhile back in the USA "unmilitary Keynesianism" by January
1941 had reduced unemployment only from 24 to 15 percent although by that time
unemployment in Germany had been virtually nil for five or six years. Greatly
increased non-military spending would have further reduced unemployment in the
USA but a consensus for the needed amount of spending was unobtainable. The
fact is that only when Roosevelt turned to military Keynesianism could he get
the votes in Congress for the expenditures needed to bring about very nearly
full employment by 1943. But unlike Hitler who relied mainly on terror,
Roosevelt got the co-operation of his capitalists by bribery in the form of
"cost plus" contracts.

The first and most important lesson of the experiences of the two countries
is that whatever is engineeringly or technically feasible is financially
feasible. When sufficient labour, natural resources, and know-how are at hand,
any project which government cares to undertake can be financed. The plea that
"we can’t afford it" simply will not wash.

The second lesson seems to be that a consensus to carry through on
full-employment projects is obtainable and sustainable only when leaders resort
to waving the flag and calling for military expenditures. No matter how
laudable and feasible, other projects always get shorted.

When I was in my teens I often heard the USA praised as "a not
militaristic nation" and for having no standing army of significant size.
I believe that was the prevailing sentiment then. Now it seems no exaggeration
to say that the USA is the most militaristic nation on the face of the earth
and the one with the largest standing army. Yet everyone I encounter seems to
believe the country praiseworthy on this account. So much for public opinion
and vox populi, vox Dei.

Not all of current prosperity in the USA is attributable to military
spending, of course, but one wonders how well the economy would fare if the
very considerable degree of military Keynesianism that remains here were
discontinued.